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Generation Debt: The Good, the Bad and the Ugly

Written by: MainStreet04/02/13 - 3:22 PM EDT

by William Richards

NEW YORK (MainStreet) --Indebtedness is a power relationship; one side has it, the other doesn't. A cynic will see the debtor as a serf tilling someone else's land. A naked capitalist, on the other hand, will see the debtor playing a supporting and necessary role the psycho-drama of our national economy.

Debt is a much more nuanced beast. As something so intrinsic to economics, it represents equal parts financial opportunity and millstone. And, that's why we distinguish between good and bad debt.

It has something to do with debt's cause--a small business loan (at 4-8%) is surely nobler than that a vacation to Key West expensed to your credit card (at a variable interest rate north of 19%). It also has to do with debt's intentions. Money-lenders are in business to lend you money, plain and simple, regardless of your best (or worst) judgment about how to spend and repay that money.

Student loans are the ultimate in good debt, at least historically. Your blue ribbon diploma should indicate, or so the lender believes, that you're going to be a productive, educated wage earner who pays down the principal. That's a good, economically supporting role to play, all things considered, because the promise of prosperity leaves you free to wrap yourself in other kinds of debt--good and bad--over the course of your life: home mortgage, credit cards, and then loans for your own children to attend college.

Student Loan Debt and the Diminishing Retirement Dream

If you're 20 years out of college, though, the underlying assumption that you'll play this supporting role is not as true as it once was--particularly if you're struggling to pay your student loans.

Student loan delinquency rates are up 50% since 2005, according to FICO Labs, and two-thirds of national student debt is owed by adults under the age of 40. Saddled with hundreds of dollars of student loan payments per month, Gen X- and Y-ers and Millennials do not fit the model of so-called productive wage earners--particularly if they can't free up capital for a down payment on a home or gain access to credit.